PAN-AMERICAN LIFE INSURANCE COMPANY, ET AL, PETITIONERS V. OTIS R.
BOWEN, SECRETARY OF HEALTH AND HUMAN SERVICES
No. 87-1331
In the Supreme Court of the United States
October Term, 1987
On Petition for a Writ of Certiorari to the United States Court of
Appeals for the Fifth Circuit
Memorandum for the Respondent in Opposition
Petitioners contend that the court of appeals erred in issuing a
writ of mandamus ordering the district court to dismiss the Secretary
of Health and Human Services (HHS) as an involuntary plaintiff in
petitioners' suit under the Employee Retirement Income Security Act of
1974 (ERISA), 29 U.S.C. (& Supp. III) 1001 et seq., where the purpose
of making HHS an involuntary plaintiff was to force it to litigate in
a United States district court a contract dispute over which the court
had no jurisdiction.
1. The Contract Disputes Act of 1978 (CDA), 41 U.S.C. 601 et seq.,
establishes an exclusive mechanism for resolving most disputes arising
out of government contracts. Under the CDA, contractor claims against
the government and government claims against a contractor are
initially considered by a contracting officer, who issues a written
decision on each claim (41 U.S.C. 605). The CDA provides that,
following that decision, a dissatisfied contractor may either appeal
to the agency's board of contract appeals (41 U.S.C. 606) -- from
which review is available in the Court of Appeals for the Federal
Circuit under 41 U.S.C. 607(g)(1) -- or bring an action directly on
the claim in the United States Claims Court (41 U.S.C. 609). /1/ The
CDA does not permit the initiation or review of contract claims in the
district courts. See ibid. To the contrary, 28 U.S.C. 1346(a)(2)
explicitly denies the district courts jurisdiction of any claim
"founded upon any express or implied contract with the United States *
* *."
2. Between 1966 and 1980, HHS awarded a series of contracts to
petitioner Pan-American Life Insurance Company (Pan-American) under
which Pan-American was to process certain Medicare claims within the
State of Louisiana. The contracts provided that Pan-American would be
reimbursed for administrative costs, and between 1966 and 1984
Pan-American charged the Medicare program almost $3 million for
pension costs for Pan-American employees working on the contracts.
The last Medicare contract with Pan-American was terminated on
December 31, 1984. Pursuant to the terms of that contract (see note
5, infra), an adjustment of previously allowable pension costs was to
be made at the time of termination. A preliminary audit revealed that
HHS had overpaid Pan-American in the amount of $2,759,828. Pet. App.
17a-19a, 30a-32a.
After the termination of the contract, former participants in the
Pan-American Life Insurance Company Employees' Retirement Plan filed
suit against Pan-American in the United States District Court for the
Eastern District of Louisiana (Pet. App. 16a-31a). The complaint
alleged that the employees had a stake in approximately $6 million in
pension benefits they alleged should have been paid to employees for
work done for Pan-American in connection with the Medicare contracts
(Pet. App. 28a-29a). Plaintiffs sought "an allocation of the plan as
delineated in (29 U.S.C. 1344)." /2/ HHS was not named as a defendant
in this action.
3. At plaintiffs' suggestion, and over HHS's objections, the
district court joined HHS as an involuntary plaintiff pursuant to Fed.
R. Civ. P. 19(a) (Pet. App. 1a). The apparent effect of this order
would be to require HHS to litigate in this case in the district court
its claim for repayment of any amounts it may have overpaid
Pan-American for pension costs. On January 20, 1987, the Secretary
moved for dismissal of HHS arguing, inter alia, that the district
court lacked jurisdiction over any contract dispute between HHS and
Pan-American because 28 U.S.C. 1346(a)(2) denies the district courts
jurisdiction over such disputes. At the same time the Secretary
sought leave for HHS to appear as amicus curiae to apprise the court
of the government's interest in the disputed funds (Pet. App.
58a-62a). /3/
The district court denied the motion to dismiss and denied the
motion to appear amicus curiae as moot (Pet. App. 2a). The Secretary
then filed a motion to certify the denial of the motion to dismiss for
interlocutory appeal pursuant to 28 U.S.C. 1292(b). When the district
court denied this motion (Pet. App. 3a-4a), the Secretary petitioned
the court of appeals for a writ of mandamus directing the district
court to dismiss the Secretary from the case. The court of appeals
granted the petition, noting that a writ of mandamus was "the only
available means to accomplish review of the district court's
jurisdiction at this stage of the proceedings" (Pet. App. 5a).
4. The decision of the court of appeals is correct and does not
conflict with any decision of this Court or of any other court of
appeals. Further review is therefore unwarranted.
a. The government asserts a contract claim against a contractor by
means of a written decision issued by the contracting officer. 41
U.S.C. 605(a). This decision is "final and conclusive and not subject
to review by any forum, tribunal, or Government agency, unless an
appeal or suit is timely commenced as authorized" in the CDA. 41
U.S.C. 605(b). The CDA provides that the final decision of a
contracting officer may be challenged either by appealing to the board
of contract appeals (41 U.S.C. 606) or by filing an action in the
Claims Court (41 U.S.C. 609). The district courts have been expressly
denied jurisdiction over such claims. 28 U.S.C. 1346(a)(2) ("the
district courts shall not have jurisdiction of any civil action or
claim against the United States founded upon any express or implied
contract with the United States or for liquidated damages in cases not
sounding in tort which are subject to sections 8(g)(1) and 10(a)(1) of
the Contract Disputes Act of 1978 (41 U.S.C. 607(g)(1) and
609(a)(1))").
On October 27, 1987, after the writ of mandamus was issued to the
district court in this case, the government contracting officer issued
a final decision finding that Pan-American owed the government
$2,678,135 in overpayments. A demand letter asserting this claim was
sent to Pan-American. Because the 90-day period in which to appeal to
the agency board of contract appeals has now expired (41 U.S.C. 606),
Pan-American, if it chooses to contest this claim, must file a direct
action in the Claims Court. HHS cannot, directly or indirectly, be
forced to litigate the claim in the district court. Nor could HHS
have been forced to litigate the claim prematurely in the district
court prior to issuance of the contracting officer's final decision.
b. Petitioners attempt to evade the jurisdictional limitations of
the CDA in two ways. First, petitioners argue (Pet. 8-14) that,
because the employees' suit against Pan-American arises under ERISA
and because HHS may have an interest in some of the same funds in
which the employees assert an interest, the government's contract
claim also arises under ERISA and, hence, falls within the general
federal question jurisdiction of the district court (28 U.S.C. 1331).
This argument is patently wrong. HHS does not have an ERISA claim
against Pan-American; it has a claim for overpayment under the
Medicare contract, which may be heard only by an agency board of
contract appeals or in the Claims Court. /4/
Second, petitioners contend (Pet. 16-18) that the CDA does not
apply to HHS's claim against Pan-American because the original
contract between HHS and Pan-American was entered into before the
effective date of the CDA. See 41 U.S.C. 601 note (CDA applies "to
contracts entered into" on or after March 1, 1979). This argument
fails for two reasons. First, the overpayment dispute does not
concern a breach of any obligation under the 1966 contract. It
concerns the obligation under the 1980 contract to settle any
overpayment or underpayment in the pension fund at the time of the
termination of the contract, an event that occurred in 1984. /5/
Article XXIII of the 1980 contract expressly states that "(t)his
agreement is subject to the Contract Disputes Act of 1978."
Second, jurisdiction would not in any event lie in the district
court over a dispute concerning payments made pursuant to contracts
entered into prior to the effective date of the CDA. Prior to the
enactment of the CDA, contract disputes where the amount in
controversy was more than $10,000 were within the exclusive
jurisdiction of the Court of Claims. 28 U.S.C. (1976 ed.) 1491 (see
note 1, supra). The amount claimed by the Secretary here is
substantially more than $10,000. Thus, even under pre-CDA law, the
contract dispute over this amount would not have been within the
jurisdiction of the district court.
It is respectfully submitted that the petition for a writ of
certiorari should be denied.
CHARLES FRIED
Solicitor General
APRIL 1988
/1/ Originally, the CDA provided for appeals to the United States
Court of Claims, which was abolished by the Federal Courts Improvement
Act of 1982, Pub. L. No. 97-164, 96 Stat. 25. The trial functions of
the Court of Claims have been transferred to the Claims Court.
/2/ 29 U.S.C. 1344 provides that "(i)n the case of the termination
of a single-employer defined benefit plan, the plan shall allocate
assets of the plan" according to a statutorily defined formula.
/3/ At that time, HHS had not asserted a formal claim against
Pan-American for overpayment on the contract since only a preliminary
audit had been competent. A formal claim has since been asserted in
the amount of $2,678,135.
/4/ It is clear that a claim by HHS against Pan-American for
overpayment does not fall within Section 502 of ERISA, 29 U.S.C. 1132
(providing for civil enforcement actions). "ERISA carefully
enumerates the parties entitled to seek relief under Section 502; it
does not provide anyone other than participants, beneficiaries, or
fiduciaries with an express cause of action for a declaratory judgment
on the issues of this case. A suit for similar relief by some other
party does not 'arise under' that provision." Franchise Tax Bd. v.
Construction Laborers Vacation Trust, 463 U.S. 1, 27 (1983).
Petitioners' reliance (Pet. 8-11) on Metropolitan Life Ins. Co. v.
Taylor, No. 85-686 (Apr. 6, 1987), and other cases from this Court
discussing when ERISA preempts state-law claims and when ERISA-related
suits should be heard in federal rather than state court is misplaced.
No such questions are presented here. No ERISA issues are implicated
in the dispute between HHS and Pan-American. In Northeast Dep't ILGWU
Health & Welfare Fund v. Teamsters Local Union No. 229 Welfare Fund,
764 F.2d 147, 156-159 (3d Cir. 1985), upon which petitioners also rely
(Pet. 13), the court found federal question jurisdiction in a dispute
between two rival ERISA plans that was not explicitly authorized by
ERISA on the theory that the courts would have to apply a "federal
common law" of ERISA to resolve the dispute. But the contract dispute
between the Secretary and Pan-American does not involve the
application of ERISA law at all. It is purely a government contract
dispute to be resolved in the forums provided by Congress.
/5/ Article XXIX of the 1980 contract (a copy of which has been
lodged with the Clerk) provides in pertinent part that upon
termination of the agreement "any funds advanced to the Carrier under
this agreement which have not been expended or encumbered in
accordance with the terms of this agreement prior to the date the
agreement was terminated shall be returned to the Secretary and any
funds determined to be due to the Secretary or the Carrier after
application of Article XVII shall be paid to such party." Article XXVI
of the 1980 contract provides that any functions undertaken pursuant
to prior agreements and continued in the 1980 agreement "shall be
deemed to be performed under and subject to the terms of this
agreement."